G-10 minutes from 1997 show central bankers conspiring about gold

3:43p MT Friday, February 18, 2011

Dear Friend of GATA and Gold (and Silver):

Western government and central bank officials discussed coordinating their gold market policies at a private meeting of the G-10 Gold and Foreign Exchange Committee in April 1997, according to minutes of the meeting released to GATA today by the Federal Reserve Board upon the order of a federal court. The minutes also quote a U.S. delegate as warning that a rising gold price would increase the U.S. government's debt burden.

The document was only one of many whose release was sought by GATA in its freedom-of-information lawsuit against the Fed in U.S. District Court for the District of Columbia. The judge, Ellen Segal Huvelle, ruled two weeks ago that other documents containing the Fed's gold-related secrets were exempt from disclosure under the law.

The G-10 committee minutes were compiled by New York Fed official Dino Kos and were transmitted to the Fed's Board of Governors by Edwin M. Truman, then director of the Fed's International Finance Division and a participant in the meeting.

They quote a British delegate as saying that while the gold price seemed "sluggish," the gold market itself was actually showing "resilience" and "physical demand is high." The British delegate described the gold market as "traditionally secretive."

The minutes show committee members acknowledging the heavy involvement of central banks in gold leasing, with the British delegate estimating that a year's worth of gold production already had been sold forward. That was 14 years ago and of course much central bank gold leasing followed until the last year or so.

According to the minutes, the U.S. delegate cited above, identified only as "Fisher" -- apparently Peter R. Fisher, head of open market operations and foreign exchange trading for the Federal Reserve Bank of New York -- also warned that central bank gold sales and leasing might be construed as positive for gold. The minutes say: "First, he noted that some market cynics viewed central bank activity as a contrary indicator and therefore one had to be conscious of possible feedback effects. Second, he noted that the price of gold, unlike other commodities, had historically not trended toward the cost of production. This seemed to suggest an ongoing supply/demand imbalance. Third, he had the sense that the gold leasing market was an important component in this puzzle, though he did not understand enough about that market, particularly the credit risk aspects of gold lending."

A Canadian delegate, the minutes say, wondered whether data about the gold market could be trusted -- a point much pressed by GATA and others lately.

U.S. delegate Fisher, the minutes say, "explained that U.S. gold belongs to the Treasury. However, the Treasury had issued gold certificates to the Reserve Banks, and so gold (by these means) also appears on the Federal Reserve balance sheet. If there were to be a revaluation of gold, the certificates would also be revalued upwards; however [to prevent the Fed's balance sheet from expanding] this would lead to sales of government securities. So the net benefit to Treasury would need to be carefully calculated, since sales of government securities would expand the public portfolio of government securities and hence also expand the Treasury's debt-servicing burden."

This seems to be as candid an acknowledgement as any of the U.S. government's profound interest in suppressing the price of gold.

Two years after the G-10's Gold and Foreign Exchange Committee discussed coordinating Western central bank policies toward gold, most of those central banks announced just such a formal mechanism of cooperation, the Washington Agreement on Gold:

http://www.ecb.int/press/pr/date/1999/html/pr990926.en.html

The minutes of the April 1997 meeting of the G-10 Gold and Foreign Exchange Committee, which the Fed sought to conceal, along with the secrecy on which the Fed successfully has insisted for its other gold records, are powerful confirmations of Western central bank interest in controlling the gold market surreptitiously. The minutes have been posted at GATA's Internet site here:

http://www.gata.org/files/FedMemoG-10Gold&FXCommittee-4-29-1997.pdf

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.